Petrojam absorbs US$18 million in fuel subisidies

Jamaica's state-owned refinery has been absorbing millions of dollars in subsidies over the past several months to protect the pockets of Jamaicans from the real inflationary cost of fuel.

 

Petrojam Chairman Metry Seaga, in drilling down the layers of the local oil refinery’s pricing mechanism, said the company has spent US$18 million shielding consumers from the impact of the oil-price shocks triggered by the US-Israel war on Iran.

 

He was part of a panel discussion during the Jamaica Chamber of Commerce/GK Capital Business and Consumer Confidence Indices press briefing at the Jamaica Pegasus on Tuesday, July 22, 2026. The panel discussion titled ‘Fuelling Confidence’ addressed how energy costs shape business and consumer confidence

 

"At Petrojam we probably don't do a good enough job of explaining how the pricing mechanism is done," Seaga admitted, recalling that even he struggled to grasp it years ago as president of the Jamaica Manufacturers Association.

 

"Fuel costing is very complex," he added.

 

Describing the formula, Seaga shared that Petrojam begins the process each Wednesday morning with the US Gulf Coast petrol price, then adds about four fixed cost components. For years, the Government of Jamaica has mandated Petrojam to cap weekly oil prices increases passed on to consumers at $4.50 per litre.

 

“So, what the Government of Jamaica has been doing for many years is called a smoothing technique. So it levels out the cost of fuel to the consumer up or down over the year, and usually that account comes out as level…so that consumers don’t feel it every week,” the Petrojam chairman outlined.

 

That system held up fine when global prices were not as volatile. However, when the war between the United States and Iran erupted on February 28, 2026, it sent Brent crude up 43 per cent within two weeks and pushed prices to a above US$126 a barrel by late April.

 

At the local level, fuel prices have in some instance risen by up to $40 per litre.

 

"To date, Petrojam has spent US$18 million subsidising the cost of fuel," Seaga said.

 

As oil price volatility intensified and the losses grew too large to manage, Petrojam about four weeks ago sought Cabinet’s approval to lift the weekly cap from $4.50 to $12.50. That increase was reflected in pump prices last week.  Still, Seaga maintains that such a price jump is far from the global reality.

 

"The increase that the consumers saw last week of $12.50 is not a real number; the real number is significantly higher than that, but Petrojam is taking up any losses incurred," he said.

 

Expressing hope that oil prices will eventually fall, the chairman disclosed that the refinery plans to lower pump prices by less than the full decline. In the meantime, he wants the Government to compensate Petrojam for the losses it sustained at the $4.50 price cap.

 

Seaga added that the state-owned oil refinery is committed to buffering imported inflation from the jump in global oil prices. Referring to phrase from Prime Minister Andrew Holness, he noted that “inflation is easy to go on but hard to come off”.

 

According to the Statistical Institute of Jamaica, annualised inflation as at June 2026 rose by 6.7 per cent, due mainly to a 4.3 per cent increase in the Transport index.

 

Diversification of Revenue

In the meantime, to cauterise the financial bleed Petrojam will explore diversifying its fuel distribution portfolio to include alternative sources of energy.

 

“We are going to look at integrating Petrojam into all sources of fuel. My board doesn’t feel that we should be into gas alone or heavy fuel oils alone. We feel that LNG (liquefied natural gas) is something we need to be looking at, solar we need to be looking at, even nuclear we need to be looking at,” Seaga told the gathering.

 

“Whatever is fuelling the country, I think, Petrojam needs to be in,” he continued.

 

For the long term, the chairman said the company will need to consider revenues from fuel upstream and downstream revenues if an oil discovery in Jamaican water occurs. That, though, will require heavy investment, but Seaga believes the company has begun to take on a “new look”.

- JS

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